Strike at US East Coast ports could be 'lifeline' for shipping companies

Photo: ILA

By Mike Wackett 08/19/2024

With each passing week, the risk of a dockworkers' strike on the East Coast and Gulf Coast increases; but ILA President Harold Daggett's promise that his union members will take to the streets on October 1 may be a glimmer of hope for ocean carriers.

Carriers privately admit that the supply chain disruption caused by the strike could be the antidote to a collapse in rates in the final quarter of the year.

Spot container rates from Asia to the U.S. East Coast have stabilized at about $9,000 per 40-foot, and from Asia to the U.S. West Coast at about $6,000 per 40-foot, up 150% and 170%, respectively, from a year ago. So there is a long way to go to lower if demand weakens significantly.

Indeed, a carrier contact recently told Loadstar that the mere threat of a strike at U.S. East Coast ports had been the primary factor in the recent surge in transpacific rates, and that a full-scale strike would see us through the winter.

Of course, operators will publicly say that they will do everything they can to adjust their networks to mitigate the impact of any industrial action, but the uncertainty will weigh on prices.

An early peak season caused by nervous shippers pre-loading holiday season products has exposed carriers to the reality of overcapacity on major trade lanes, despite ongoing Red Sea disruptions.

This year, the fleet is expected to accommodate 3.2 million TEUs of newbuild capacity, on top of the 2.5 million TEUs added in 2023. So far, all of this has been absorbed by growing demand for front-end containers and the domino effect of port congestion and subsequent container pool movements.

Even taking into account the additional tonnage needed to reroute ships around the Cape of Good Hope, most analysts predicted a serious overcapacity situation would emerge earlier this year, given the sheer number of new ships hitting the water. However, due to an earlier-than-usual peak season, the problem now looks likely to impact carriers in the final quarter and first three months of 2025, just as a dramatic shift in the alliance’s composition is taking place.

It follows that weak demand is not the ideal time for carriers to test the loyalty of shippers who have seen short- and long-term contracts abused by companies profiting from the lucrative spot market.

Meanwhile, the same carrier contact told The Loadstar that they had been stunned by the strength of demand in June and July on the transpacific and Asia-Europe trades, and that it felt like the Covid period was coming back.

The fear now is that the early peak season could make the next traditional off-peak season weaker than normal, with obvious consequences for freight rates.

Privately, however, carriers may be encouraged by Mr Daggett's remarks, which said: “We will not entertain any discussions about extending the current contract, and we are not interested in any assistance from outside agencies that would interfere with our negotiations.”

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